Evening Market Update

Equities Rangebound Ahead of FOMC Minutes

With little in the way of equity news, a dormant US economic calendar and the Treasury markets closed in observance of the Columbus Day holiday, trading volume was light and stocks were little changed as investors may have been cautious ahead of tomorrow’s release of the minutes to the Fed’s September monetary policy meeting. Also, a lull before 3Q earnings season begins to ramp up this week and a report that China’s central bank upped its reserve requirements may have contributed to the lack of conviction. Second-tier equity news focused mostly on M&A activity, as Chesapeake Energy agreed to sell one third of its South Texas oil and natural gas project to China’s CNOOC Ltd for around $1.08 billion in cash, and Gymboree will be acquired by affiliates of private equity firm Bain Capital Partners for $1.8 billion. In earnings news, LDK Solar upped its 3Q revenue forecast citing higher-than-expected demand.

The Dow Jones Industrial Average inched 2 points (0.02%) higher to close at 11,008, while both the S&P 500 Index and the Nasdaq Composite were flat at 1,165 and 2,402, respectively. In light volume, 788 million shares were traded on the NYSE and 1.5 billion shares were traded on the Nasdaq. Crude oil fell $0.45 to $82.21 per barrel, wholesale gasoline gained $0.02 to $2.17 per gallon, and the Bloomberg gold spot price added $6.99 to $1,353.73 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.1% higher at 77.48.

Chesapeake Energy Corp. (CHK $24) was higher after China’s CNOOC Ltd. (CEO $215) agreed to purchase a 33.3% undivided interest in Chesapeake’s acreage in the Eagle Ford oil and natural gas project in South Texas for about $1.08 billion in cash. In addition, CNOOC has agreed to fund 75% of Chesapeake’s share of drilling and completion costs until an additional $1.08 billion has been paid, expected to occur by year-end 2012.

In other M&A news, shares of Gymboree Corp. (GYMB $65) were sharply higher after the retailer agreed to be acquired by affiliates of private equity firm Bain Capital Partners for $65.40 per share, or $1.8 billion, representing a 23.5% premium to GYMB’s closing price on Friday. The deal is expected to close by year end.

LDK Solar Co. (LDK $11) was over 14% higher after the Chinese solar wafer and modules company increased its 3Q revenue forecast from a range of $570-600 million to a range of $610-640 million on increased shipments. Analysts surveyed by Reuters had expected the company to report 3Q revenue of $586 million.

Although today’s US earnings calendar was absent of any major releases, this week 3Q profit season will begin to heat up, headlined by reports from Dow members Intel Corp. (INTC $20), JPMorgan Chase & Co. (JPM $39), and General Electric Co. (GE $17 ¹).

Bond market closed and economic calendar dormant

Due to the Columbus Day holiday, the Treasury markets were closed today and the economic calendar was void of any major releases. The week’s fireworks may lie with tomorrow’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. In the statement following the meeting, the Fed changed its outlook on inflation, saying it is currently at levels "somewhat" below the level consistent with its dual mandate of price stability and maximum employment, and indicated that they are prepared to provide additional accommodation if needed. With the fed funds target rates already at 0-0.25%, the Fed's most likely form of additional accommodation would come in the form of asset purchases of bonds, commonly known as quantitative easing (QE).

St. Louis Fed President Bullard said that QE was not a given at the November FOMC meeting, as economic data, while soft, wasn’t clearly negative, while New York Fed President Dudley said the expected rate of progress on the economy and job growth was “unacceptable.” Traders will be looking for any nuances as to the uniformity of opinions and satisfaction with current and forecasted economic data and if QE was tied to any quantifiable measures of weakness. Moreover, any debate as to what the best plan of deployment of QE—all at once as was the case in the first round of easing, or in increments—would likely garner some attention. Finally, Bernanke and others have noted the risks to doing more QE, and a discussion of these will also be monitored.

The only other item on the US’ economic docket tomorrow is the NFIB Small Business Optimism Survey.

Economic news overseas light, but surprisingly PBOC ups reserve ratio

The economic calendar across the pond offered only a few reports, including France industrial and manufacturing production figures that came in unexpectedly flat m/m in August, compared to economists’ forecasts for modest gains in both separate reports. As well, industrial production in Italy came in much higher than expected.

Asia/Pacific economic news was non-existent and markets in Japan were closed for a holiday. However, Reuters is reporting that after the markets closed in China, the nation’s central bank temporarily raised the reserve requirements—the amount of funds that banks must hold on hand—of six large commercial banks by 50 basis points to 17.5%. The move is an attempt to deplete cash from the economy while also trying to avoid over-tightening, and the adjustment will be in place for two months before ratios are returned to previous levels, according to Reuters’ sources. The People’s Bank of China declined to comment.

Tomorrow’s international economic calendar will have an inflation slant, as Germany and Sweden report CPI figures, while the UK will also release CPI numbers along with its trade balance and housing prices.